CPO price disruption

       THE abrupt lifting of Indonesia’s palm oil export ban starting this Monday will once again disrupt the commodity’s price movement in the global edible oil market.

       Barely three weeks ago, crude palm oil (CPO) prices hit the roof, trading at almost RM7,000 per tonne when Indonesia announced its full palm oil export ban on April 28.

       Now, the short-lived export ban will see CPO succumbing to some price corrections in the near term.

       While CPO will likely hover at the RM5,500 to RM6,000 per tonne levels, it is envisaged that the commodity will remain at lofty prices as the world is still facing an edible oil shortage. Many observers believe that the imposition or lifting of Indonesia’s palm oil export ban may not be the answer to its quest to stabilise high domestic cooking oil (palm olein) prices.

       The export ban imposed since April 28 has allowed ample palm oil supply that saw bulk cooking oil prices there easing by 11% to 13% to 17,200 rupiah (RM5.16) to 17,600 rupiah (RM5.28) per litre from a high of 19,800 rupiah (RM5.94) per litre. However, it still failed to achieve Indonesia’s target of 14,000 rupiah (RM4.20) per litre.

       Hence, the republic’s cooking oil price dilemma will not be resolved soon, as the lifting of the export ban will see more supply leaving the country.

       The most likely scenario will be more new policy changes by Indonesia, which is the world’s largest palm oil producer and exporter. Its palm oil policy changes will also impact its peers, with Malaysia being the world’s second-largest palm oil player.

       Among the options by Indonesia include raising of the ceiling price of its bulk cooking oil to 17,000 rupiah (RM5.10) per litre, the setting up of a government entity to buy controlled price palm olein from producers to ensure supply to the domestic market, potentially raising the export levy to set aside money specifically for cooking oil subsidies and to re-initiate the domestic market obligation scheme with different parameters.

       This constant disruption in policies does not bode well for the industry as a whole, especially where the price of CPO is concerned.

       Oil palm planters are basically price-takers. A mere RM100 increase in the CPO price per tonne could translate to a hefty contribution to the profits of industry players as well as the respective government export earnings.

       Green Hydrogen in Malaysia

       SARAWAK’S status as a large producer of renewable energy (RE) is gaining attention. Hydropower is RE and it owes a big thanks to the building of the Bakun hydroelectric plant that began in the 1990s and was commissioned in 2011.

       Notwithstanding the environmental and social issues it faced during its construction, the Bakun hydroelectric power plant ironically today puts the state of Sarawak on the green energy map.

       The Bakun project contributes 2,400MW of the state’s total 3,452MW of installed hydroelectric capacity.

       Another biggie in the form of the Baleh hydroelectric project will commission in 2025 to produce 1,285MW of electricity.

       This makes Sarawak ideal for the production of green hydrogen. Hydrogen energy is coming into play in a big way, considering its high energy efficiency, overwhelming environmental and social benefits, as well as economic competitiveness. And green hydrogen is the holy grail.

       However, producing green hydrogen is not easy, as the power needed to produce the hydrogen needs to come from an entirely renewable source.

       Most of the hydrogen energy produced today is considered gray hydrogen, which is produced using natural gas. And this is where Sarawak comes into play.

       A number of foreign companies are rushing to Sarawak to ink deals to produce green hydrogen.

       For example, South Korea’s Samsung Engineering, Posco and Lotte Chemical plus SEDC Energy – a Sarawak Economic Development Corp or SEDC subsidiary – have signed a memorandum of understanding to develop a green hydrogen project.

       So too has Japan’s Eneos Corp and Sumitomo Corp.

       Sarawak itself has for some time focused on hydrogen. In 2018, Sarawak Energy Bhd successfully commissioned South-East Asia’s first integrated hydrogen production plant with a 130kg per day production capacity and refuelling station to cater up to five buses and 10 cars per day.

       And the Sarawak H2biscus green hydrogen/ammonia project will be located in Bintulu, which is already home to the Petronas LNG Complex and Shell’s gas-to-liquids facility.

       The H2biscus Project is looking to convert hydropower and natural gas to green hydrogen/methanol and blue hydrogen, and for the conversion of hydrogen to ammonia, aiming to supply hydrogen and ammonia to South Korea and Sarawak.

       Pinch on the wallet

       THE economic news internationally is not good. Markets are tumbling and inflation is up. For us here, we have the added pressure on the ringgit’s value which continues to decline against the US dollar.

       The biggest culprit to our purses is inflation. As inflation rises, spending power takes a hit.

       The actual amount of goods and services a Malaysian can buy will be squeezed from the evaporation of purchasing power from the value scrubbing impact of inflation.

       This will also have a telling impact on consumer spending and when the government announced that there will be relaxation on the importation of foodstuff into Malaysia, there was hope that maybe there could be some form of mitigation against higher food prices locally.

       There has been much argument against the use of approved permits to bring in food.

       Having the security of government commitment to those importing foodstuff will give foreign suppliers the comfort that there can be security of payment for food that is being imported into the country.

       But on the other hand, if the cost of importing food is exorbitant, then there can be an artificial cost of profiteering from those who possess the right to import food into Malaysia.

       Examples of how much more Malaysians are paying for some foodstuff because of limited sources of suppliers has been brought up before and if the relaxation of approved permits is limited only to selected foodstuff, then the entire purpose of allowing competition will be blunted.

       It has been proven that competition is the best arbitrator for maintaining competitive prices.

       But supply disruptions are causing headaches throughout the world where the price of food has escalated because of knock-on effects.

       As prices go up, there will be hard choices to be made for households. There should be pressure valves being relaxed to ease that but an overhaul of the existing structure of food security should be looked at with more earnest once conditions return to normal.